D’Oh! People make a lot of dumb investing mistakes. And they should not expect financial advisers to correct them. Retuers reports that is one finding from two studies that used actors posing as middle- and upper-middle-class Americans looking for financial advice. Their experiences should set off alarm bells for investors and the compliance officers who monitor adviser behavior.
The undercover visits - nearly 800 in total made in 2008 and again in 2011 - are detailed in a study recently published by the National Bureau of Economic Research and another to be released by June. Researchers wanted to know if advisers tried to correct investors if they were going down a high-risk road, such as concentrating their money in a hot sector or their employer's stock.
The result? The study found advisers often reinforced harmful investor behavior when it was in their best interest to do so. For instance, actors who pretended that their investments were concentrated in the latest hot industry should have been told to diversify their holdings. Instead many advisers who work on commission - often called brokers - supported the trend-chasing strategy. One reason: brokers can turn over a concentrated portfolio frequently as one hot idea fades and another catches fire, the study said.
Most of the advisers studied were paid commissions generated from products they sold….
Read all about it at http://www.huffingtonpost.com/2012/04/04/financial-adviser-bias-greedy_n_1403908.html
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